Banking regulator warns lenders not to become complacent about mortgages, expect rate rise with tight lending in 2017.

 Canada’s banking regulator warned lenders Monday to remain strict in the way they underwrite mortgages as a way of preventing crises for financial institutions if low interest rates rise and property values drop.

Jeremy Rudin of the Office of the Superintendent of Financial Institutions said prudent lending practices have never been more important because of the current economic environment.

“When house prices have been rising for several years and interest rates have remained at all-time lows, complacency can set in,” the superintendent told a meeting of mortgage professionals in Vancouver.

“Lenders might be led to believe that weak underwriting standards will be mitigated by ever-rising collateral values.”

He told reporters that the regulator is drawing on experience from the 2008 financial crisis by keeping an eye on the small percentage of lenders that fall outside the regulatory framework while also maintaining strong standards for those covered by the superintendent’s office to ensure economic stability.

“We get out in front of issues before they become widespread,” he said.

Rudin’s speech touched on advice issued earlier this year on the industry’s practices, including verifying borrower income levels, managing higher-risk loans and ensuring adequate debt service ratios. He said the sound underwriting of mortgages relies on having reliable information about the borrower and the property that’s being purchased.

He mentioned the Bank of Canada’s concerns about increases in household borrowing and mortgage debt, in particular. Last summer, the central bank said the severity of the risks associated with a sharp correction in real estate prices in Vancouver and Toronto as well as from household financial stress have risen.

Source:The Canadian Press The Canadian Press , November 28, 2016

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